UNIT 4 ACCOUNTING FOR INVESTMENTS

Topic 5 – Investment Property

ASSESSMENT
PROBLEM 2: FOR CLASSROOM DISCUSSION
Problem 2:
1. D
2. B
3. C
4. Compute for the total amount of investment property
·Farming land purchased for its investment potential.
Planning permission has not been obtained for
building constructions of any kind. 700,000
·New office building used as head office which was
purchased specifically in the center of a major city
in order to exploit its capital gains potential. 4,000,000
Total amount of investment property. 4,700,000
5. C
6. B
7. B
8. A
9.
Purchase plus cost(1,200,000 + 50K) 1,250,000
Materials, Labor and overhead incurred. 200,000
Invesment property recoginzed on 1-1-20x1. 1,450,000

10. Fair value model

 A.) Recognized in the Dec. 31, 2007 Statement of Profit or Loss. =P4,000,000 for X and
P11,000,000 for Y
Property X Property Y
Carrying amount 24,000,000 19,000,000
Fair value 12-31-2007 (20,000,000) (8,000,000)
Decrease in value -unrealized loss 4,000,000 11,000,000
B.) Recognized in the Dec. 31, 2007 Statement of Financial Position =P20,000,000 for X and
P8,000,000 for Y
Property X Property Y
Carrying amount 20,000,000 8,000,000
C.) Adjusting emtries in Dec. 31, 2007
Dec. 31, 2007
Investment property -X 4,000,000
Unrealized loss 4,000,000
Investment property -Y 11,000,000
Unrealized loss 11,000,000

11. Cost model

A.) Total amount recognized in the Dec. 31 2007 Statement of Profit/Loss.
Depreciation expense -X(24M/10yrs.) =P2,400,000
Depreciation expense -Y(19M/10yrs.) =P1-900,000'
B.) Recognized in the Dec. 31, 2007 Statement of Financial Poaition. =P19,200,000 for X and
P15,200,000 for Y
Property X Property Y
Cost 24,000,000 19,000,000
Accumulated dep.[(24M/10) x2yrs.] -X (4,800,000)
Accumulated dep.[(19M/10) x2yrs.] -Y (3,800,000)
Carrying amount -Dec. 31, 2007 19,200,000 15,200,000
C.) Adjusting entry on Dec. 31, 2007
Dec. 31, 2007
Investment property -X 19,200,000
Accumulated depreciation 4,800,000
Cash 24,000,000
Investment property -Y 15,200,000
Accumulated depreciation 3,800,000
Cash 19,000,000

12. D
13. C
14. Journal entry under each of the following independent scenarios:
A.) Fair value model
1-1-20x1 Investment property 800,000
Accumulated depreciation 4,000,000
Revaluation shortage 200,000
Building 5,000,000
B.) Fair value model
1-1-20x1 Investment property 1,400,000
Accumulated depreciation 4,000,000
Building 5,000,000
Revaluation surplus 400,000
C.) Cost model
1-1-20x1 Investment property 1,000,000
Accumulated depreciation 4,000,000
Building 5,000,000

Problem 3: EXERCISES
1. A.)
Land held for long-term capital appreciation 200,000
Land held for a currently undetermined future use 700,000
Building rented out under operating lease 800,000
Total amount of investment property 1,700,000

B.) Land held for future plant site -PPE

Land held for sale in the ordinary course of business -Inventory
Building rented out under finance lease -not an asset of ABC Co.
Equipment leased out under an operating lease -PPE

2.
Case 1: Subsequently measured: Cost model
Investment property
Cost (1,200,000 + 200,000) 1,400,000
Accumulated dep. [(1.4M/10) x1yr (140,000)
Carrying amount -12-31-20x9. 1,260,000

Net depreciation:
Depreciation expense(1.4M/10) =140,000

Case 2: Subsequently measured: Fair value model

The year end adjusting entry
Dec. 31, 20x9 Investment property(1.4M-1.2M) 200,000
Unrealized gain from change in
fair value 200,000
3. 0 -owner-occupied portion is insignificant in relation to the whole property
4. 0 -the building is classified as PPE in the consolidated financial statements
5. Case 1:
Dec. 12, 20x9
Investment property 900,000
Accumulated depreciation 100,000
Building 1,000,000
Case 2:
Dec. 31, 20x9
Investment property 900,000
Revaluation shortage 100,000
Building 1,000,000
Case 3:
Dec. 31, 20x9 Impairment loss(600K-1M) 400,000
Accumulated depreciation 400,000
Investment property 1,000,000
Accumulated depreciation 400,000
Building 600,000

6.
Dec. 31, 20x9 Investment property 930,000
Accumulated depreciation 70,000
Land 1,000,000
To record the transfer of the land to investment
property.

7.
Jan. 1, 20x1 Building 1,100,000
Investment property 1,000,000
Unrealized gain 100,000

8.
Jan. 1, 20x1 Investment property 1,100,000
Revaluation surplus 100,000
Building 1,000,000

9.
Dec. 31, 20x1 Building 4,000,000
Accumulated depreciation 2,000,000
Investment property 6,000,000
10.
Journal entries:
Dec. 31, 20x1 Investment property 3,700,000
Direct materials 1,500,000
Direct labor 1,200,000
Overhead 1,000,000
Investment property 300,000
Unrealized gain from change in fair value 300,000

11. Investment property (4,000,000 x 2/5) =P1,600,000

12. P1,200,000 -ancillary services are considered insignificant
13.
Cost(4,200,000 + 3,000,000) 7,200,000
Annual insurance premium (120,000)
Loss 7,080,000
Problem 5:
1. E 6. A
2. C 7. C
3. B 8. B
4. D 9. A
5. D 10. B

Problem 7:
1. D 5. A
2. B 6. D
3. A 7. D
4. D 8. C